Every year, municipalities across each province in the country assess and determine their individual property tax rates.
Often falling in the 0.5–2.5% range, this tax is then multiplied by the value of the property as determined by a government agency. The tax amount is due once per year, and payable monthly or annually. Tax rates differ by municipality, and usually can change annually. It’s important to remember that property tax is not due at closing but is, instead, a monthly carrying cost.
Many of the other taxes and fees involved in buying a home involve the purchase price of the home. However, property taxes are calculated using the assessed value of the property and the intended use—residential or commercial. Your province’s assessment board—for example, MPAC in Ontario—determines the assessed value of your property and, once a year, it is multiplied by your municipality’s tax rate, paired with your province’s education tax rate and any applicable regional or county tax rate; the result is how much you owe in property taxes.
For example, if the assessed value of your home is $360,000 and your total tax rate is 1%, you would pay $360,000 x 1% = $3,600.
You can pay your property taxes in two ways: through your mortgage provider or through your municipality.
Most lenders will take your annual tax, divide it by how many mortgage payments you make each year, and add the number to each of your payments. For example: if your property taxes due are $3,600 and your monthly mortgage payment is $1,400, your lender could divide the property taxes by 12 months and add it to your monthly payment.
$3,600 annual property tax ÷ 12 months = $300 $300 + $1,400 mortgage payment = $1,700 total monthly payment
In this example, your monthly mortgage payment including your property taxes would be $1,700. The lender would then take the amount allocated for your property taxes and pay the municipality, usually once per year.
Most municipalities offer a number of other payment options, including:
In this case, the city mails bills and you pay them in regular intervals, like other bills. In Toronto, for example, you’re mailed two bills per year with three instalments each. Your total annual property tax is divided into six payments, due in March, April, May, July, August, and September.
The property taxes due by each municipality’s residents and commercial building owners help to pay for services, such as garbage and recycling collection, sewer protection, road and draining maintenance, street lighting, policing, fire protection, snow removal, and more.
When you buy a home, your real estate lawyer or notary will confirm whether or not the seller’s property taxes have been paid and are up-to-date. If they’re not, the local municipality will require the seller to pay them. However, if they are paid forward, you owe the seller any property taxes already paid for the period of time after closing.
For example, if the purchase of your home closes on February 15 and the seller has paid their property taxes until March 31, you’ll have to pay them the amount that would have been payable between those dates. This amount is calculated by your lawyer or notary and must be paid by you at closing.
Looking at the numbers we used before, you would have to pay the seller back $433 for the property taxes they prepaid:
$3,600 annual property tax ÷ 365 days per year = $9.86 per day x 44 days = $433.97 due to the seller